Foreign Policy

China's Belt and Street Initiative is a large number, not a grasp plan

The confrontation with China is reaching a fever in many Western countries. Clashes over trade, the South China Sea, COVID-19 and Huawei's role in 5G development mean a growing appetite for a new cold war with Beijing. While there are many good reasons to criticize China, there is also a growing danger that blanket sinophobia will lead to a distorted understanding of Chinese behavior and jerky political reactions.

As Shahar Hameiri and I argue in a new report for the UK think tank Chatham House, this is certainly true when it comes to China's Belt and Road Initiative (BRI). With the Foreign Policy signed by President Xi Jinping, the BRI promotes infrastructure connectivity in Eurasia and East Africa. Experts and policy makers usually consider this a great strategy to challenge US hegemony and require a confrontational response.

Particularly influential were accounts of the diplomacy of the debt trap, which came from a think tank in New Delhi. Beijing allegedly is deliberately luring poor countries into unsustainable debt to fund infrastructure projects and allowing China to seize those assets if recipients find themselves in debt distress, expanding China's strategic reach. As foreign minister, Rex Tillerson blamed the BRI's "predatory economy" while Vice President Pence accused Beijing of using Sri Lanka's debt-trap diplomacy to create a "frontline military base for China's growing blue water navy."

As our report shows, this is simply wrong. This whole narrative misunderstands China and ignores the interests and freedom of choice of recipient countries.

While western states are often criticized for lacking great strategy and shambolic governance, China is widely and enviously viewed as exactly the opposite: tightly controlled, hyper-strategic and well organized. In reality, sinologists have been documenting the reality of what they call fragmented authoritarianism for decades, reporting fierce rivalries between authorities and factions that even leaders under Xi, China's most central leader for decades, have found difficult to manage. A forerunner of the BRI, such as the Great Western Development Campaign, was more of a buzzword than a well-defined policy. To empower China's poorer inland regions, associated funds were primarily provided by state-owned companies (SOEs) and provincial governments for infrastructure projects that generated massive overcapacity, but enriched businesses and advanced the careers of local cadres.

The BRI expresses fragmented authoritarianism. It usually stems from two speeches Xi gave in 2013, as if the idea came entirely from his unique mind in response to wavering American leadership and China's rapid economic rise. In reality, the idea of ​​bringing China's longstanding infrastructure connectivity projects under one broad banner came from the National Development and Reform Commission (NDRC), the main economic planning agency. What began as a moderately coherent plan to improve connectivity with around 60 neighboring countries, however, quickly turned into a global initiative as party-state authorities pressed for resources.

The NDRC, not geostrategists, led the policy planning process. However, the actual content was provided by state-owned companies and provinces who added their own pet projects to the BRI platform. These actors care little about China's diplomatic goals (in fact, they often undermine them in practice), but are adept at using their interests for the vague ideas and slogans of top leaders. Accordingly, BRI planning documents are extremely loose and take into account different interests and projects, rather than aligning the party state's resources with specific geopolitical goals. There is no detailed strategy. There isn't even an official card – and unofficial ones were banned in 2017.

China's fragmented development finance system is also unsuitable for steering the BRI for geopolitical purposes. Diplomatic, military and strategic agencies are hardly involved. Chinese development finance is recipient-oriented: disbursements start with inquiries from abroad, not with Chinese planners. The entire building – especially today, where growth is slowing, profitability is collapsing, and overcapacity is endemic – is geared towards helping Chinese companies expand overseas. The commercial interests of the companies are prioritized. Feasibility study, risk management and oversight are weak.

This results in the gradual, non-strategic approval of many questionable loans and investments. From 2014 to 2016, state media even warned of the lack of corporate supervision, while the governor of the central bank lamented the many projects that “do not meet our industrial policy requirements”, “are of little use to China and have led to complaints abroad. "Although this has led to some intensification of foreign investment, especially in real estate, around half of China's foreign investment is still loss-making. Outbound investment does not even flow into the six 'corridors' outlined in official policy documents Percent of Outbound Investment in BRI Countries Company documents show that commercial interests and domestic overcapacity are the main drivers of projects that are not regulated or directed by government policy.

Just as the BRI is neither a coherent and sinister system, nor are the recipient countries simply unfortunate victims of Beijing's debt-trap diplomacy. Nothing can be built in their area without their consent, and they participate for their own reasons – good and bad.

The World Bank estimates that by 2040, $ 97 trillion in infrastructure investments will be required worldwide. The need is particularly high in poor developing countries. Nevertheless, Western donors have generally given up infrastructure development for useless so-called good governance projects. Understandably, Chinese aid seems attractive to many.

Often, however, shameful interests are also at work. The construction industry is an incredibly corrupt business sector. Elites can extract setbacks, assign projects for electoral advantage, and involve their business partners in lucrative joint ventures. Greed can easily overwhelm a rational development plan, especially if recipients mistakenly assume that China will do their due diligence for them. The damage is exacerbated when governments fail to adequately regulate Chinese companies and fail to consult or compensate affected populations. For example, we repeatedly see corruption scandals in energy projects in Kazakhstan and protests against land grabbing in Cambodia, as regime-related tycoons and their Chinese partners go ahead with impunity.

These pathologies – both on the Chinese and the recipient side – shape the selection, design, implementation and results of BRI projects. Instead of emerging from a one-sided “grand strategy” from top to bottom, projects – and their shortcomings – usually arise from the bottom up through the interface between the interests of the recipient elite and the commercial agendas of Chinese developers. You can easily take advantage of the vague BRI for loans and approvals, especially in countries where Chinese leaders want to forge warm ties.

The port of Hambantota in Sri Lanka has been considered the quintessential debt trap diplomacy, but it actually illustrates this chaotic dynamic in the real world.

The proposal to build the port did not come from Chinese geostrategists, but from Sri Lanka's powerful Rajapaksa family. It was part of a grandiose development strategy that was adopted long before the BRI started in 2006 and aimed at strengthening electoral support in the family's home district and cushioning the regime's own nest. A new airport, conference center, cricket stadium and a new airline were also part of this dubious vision.

The Rajapaksas were encouraged by China's state-owned China Harbor Engineering, which was looking for lucrative business in Sri Lanka after the conflict. The company overdone the project's payouts and helped Colombo apply for Chinese funding just for a rival company, Sinohydro, to build muscle. Both companies recruited various brothers to the president to try to secure the contract. Chinese regulators waved off the deal as a piece of cake: Colombo took the risk from national debt of US $ 1.34 billion; both Chinese companies shared the lucrative contract; and Beijing won favor with a friendly government.

In practice, however, everything turned sour. Construction went smoothly, but Colombo botched the operational side, opened the port prematurely to celebrate the president's birthday while a massive stone was still blocking the entrance, and failed to provide port services or attract investors. Like the nearby airport – the emptyest in the world – the port of Hambantota was soon heavily loss-making.

By 2016, Sri Lanka was in a serious debt crisis – not caused by Chinese loans, which account for only 6 percent of Colombo's external debt – but by reckless borrowing in US dollar-denominated international markets as part of US quantitative easing.

Beijing also failed to take advantage of the crisis to seize the port in exchange for debt relief. At Colombo's urging, another state-owned company, China Merchant Ports, "invested" $ 1.1 billion in exchange for a 99-year lease. However, the original loans remained. Western creditors were repaid with the cash injection and Sri Lanka's foreign exchange reserves were strengthened. For this reason, Sri Lanka's port minister thanks "China for arranging this investor in order to save us from the debt trap". China Merchant Ports is now fighting to get this white elephant to make a profit to recoup its investment.

China is also said to have captured Hambantota to increase its range, but in reality it cannot use the port for military purposes. This was expressly prohibited in the rental agreement. The Sri Lankan Navy remains responsible for the security of the port and is relocating its southern command to Hambantota. No Chinese naval ships have called at the port – although US, Japanese and Indian warships have. In short, much of what experts claim to know about the Port of Hambantota is actually a myth.

Chaos is far more common than conspiracy in Chinese overseas investment practices. Strategic narratives do not lead BRI projects so much, they create opportunities that self-interested actors can use. Beijing's diplomats and regulators don't inspire certain projects so much as they clean up the mess when things go wrong.

Instead of denouncing and curtailing the BRI, it would be better for Western politicians to promote it. Overstretching and poor supervision are causing significant setbacks against China in many BRI countries, without the need for outside intervention.

But if the West wants to help the people in the global South, there are better options. They can offer alternative financing options. They can help strengthen beneficiaries' ability to assess project feasibility and negotiate harder with Chinese lenders and contractors. And they can support civil society campaigns for transparency and public participation in planning, procurement and oversight.

There is also an opportunity to work with China. Asian Infrastructure Investment Bank shows how Western and Chinese development agencies can work together to improve the integrity and standards of Chinese projects. Collaborative funding could be further promoted. However, this would require reversing the sinophobia that is increasingly tarnishing politics and developing a more realistic understanding of the nature and limits of Chinese power.

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